Thompson v Lane

Case [2024] FCA 1234

FEDERAL COURT OF AUSTRALIA

Thompson v Lane [2024] FCA 1234  

File number(s): QUD 447 of 2023
Judgment of: COLLIER J
Date of judgment: 24 October 2024
Catchwords:  BANKRUPTCY – applicant discharged from bankruptcy – application for trustee to cease acting – administration of bankrupt estate ongoing – further relief seeking full and frank disclosure – duties of trustee – duty to inform – alleged improper payment out of administration account 
Legislation:

Bankruptcy Act 1966 (Cth) ss 19, 149, 152, 178, sch 2, div 45-1, 42-60, 65-25, 70-56

Insolvency Practice Rules (Bankruptcy) 2016 (Cth) ss 42-60, 70-17(5)
Cases cited:

Australian Broadcasting Corporation v O'Neill [2006] HCA 46; 80 ALJR 1672; 229 ALR 457

D’orta-Ekenaike v Victoria Legal Aid & Anor (2005) 214 ALR 92

Daemar v Industrial Commission of New South Wales and Anor (No 2)(1990) 22 NSWLR 178

Hudson Jnr v Whalan and Anor [1998] FCA 1064

McGoldrick v Official Trustee in Bankruptcy (1993) 47 FCR 547

Oshlack v Richmond River Council [1998] HCA 11; (1997) 152 ALR 83

Pegler v Dale [1975] 1 NSWLR 265

Re Balhorn; Ex parte Balhorn and Official Trustee (1981) 39 ALR 223

Storry v Weir (No 2)[2022] FCA 1360

Thompson v Lane (Trustee) (No 3) [2022] FCA 128

Thompson v Lane (Trustee) [2023] FCAFC 32

Trkulja v Morton (No 2) [2005] FCA 1044

CCH Australian Bankruptcy Law and Practice
Division: General Division
Registry: Queensland
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Number of paragraphs: 69
Date of last submission/s: 25 March 2024
Date of hearing: 6 February 2024
Counsel for the Applicant: the applicant appeared in person
Solicitor for the Respondent: Shand Taylor Lawyers

ORDERS

QUD 447 of 2023
BETWEEN:

EMMA NARELLE CATHRYN THOMPSON

Applicant
AND:

MORGAN LANE

Respondent

ORDER MADE BY:

COLLIER J

DATE OF ORDER:

24 OCTOBER 2024

THE COURT ORDERS THAT:

1.The interim order sought by the applicant in the originating application filed on 17 October 2023 be refused.

2.The interim application filed on 13 December 2023 be dismissed.

3.The further relief sought by the applicant pursuant to submissions filed on 6 February 2024 be refused.

4.The applicant pay the costs of the respondent of and incidental to these interlocutory proceedings on a party-party basis.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

COLLIER J:

  1. Before the Court are two interim applications filed by Ms Emma Thompson in which she sought orders for removal of the trustee of her bankrupt estate, Mr Morgan Lane of Worrells insolvency firm (the trustee). She also sought payment of funds allegedly held by the trustee.

  2. The first application was filed by Ms Thompson as part an Originating Application on 17 October 2023 and was accompanied by an affidavit of Ms Thompson dated 16 October 2023. The second interim application was filed by Ms Thompson on 13 December 2023 and was accompanied by an affidavit of Ms Thompson dated 13 December 2023.

  3. The…

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AGLC
Thompson v Lane [2024] FCA 1234
Case
[2024] FCA 1234
Decision Date

CaseChat Overview and Summary

In Thompson v Lane, the applicant, Ms Emma Narelle Cathryn Thompson, sought various forms of interim relief and further relief against the trustee of her bankrupt estate, Mr Morgan Lane, pursuant to the Bankruptcy Act 1966 (Cth). The primary issues revolved around the trustee's actions in administering the estate, particularly regarding the payment of legal costs and the disclosure of information. Ms Thompson alleged that the trustee had made improper payments from the administration account without a valid legal basis and failed to provide full and frank disclosure as required by the Act and the Insolvency Practice Rules (Bankruptcy) 2016.

The court considered whether Ms Thompson was entitled to the interim relief she sought, which included the removal of the trustee and the payment of various sums by the trustee. It also examined whether the trustee had complied with the duties imposed by the Bankruptcy Act and the Insolvency Practice Rules, particularly concerning the necessity and reasonableness of costs incurred. The court emphasised that the proceedings were not a means to relitigate previously decided matters and that costs generally follow the event.

In its reasoning, the court found that the trustee had acted within the bounds of the law in administering the estate, and that the payments made were for purposes related to the administration of the estate and in accordance with the Act. The court also noted that the sections of the Act and Rules cited by Ms Thompson did not support the relief she sought. Consequently, the court refused the interim relief sought by Ms Thompson and dismissed the further relief application. The court ordered that Ms Thompson pay the respondent's costs of and incidental to these interlocutory proceedings on a party-party basis.

Orders

Orders of the court

1. The interim order sought by the applicant in the originating application filed on 17 October 2023 be refused.

2. The interim application filed on 13 December 2023 be dismissed.

3. The further relief sought by the applicant pursuant to submissions filed on 6 February 2024 be refused.

4. The applicant pay the costs of the respondent of and incidental to these interlocutory proceedings on a party-party basis.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

In my view the interim relief sought by Ms Thompson should be refused for the following reasons.BACKGROUND There has previously been litigation between Ms Thompson and the trustee. In particular I note a summary of events which led to Ms Thompson’s bankruptcy explained by Logan J in Thompson v Lane (Trustee) (No 3) [2022] FCA 128: 1.Pursuant to s 55(4A) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act), Ms Emma Narelle Cathryn Thompson became a bankrupt on 1 July 2020 upon the acceptance (and endorsement accordingly) by the Official Receiver of a debtor’s petition presented by her on 26 June 2020. She has applied, pursuant to s 153B(1) and (2) of the Bankruptcy Act, for an order that her bankruptcy be annulled.2.…3.The grounds of Ms Thompson’s application are that her “Debtor’s Petition ought not to have been presented and ought not to have been accepted by the Official Receiver, and that the Sequestration Order made on 1 July 2020 should not have been made”4.The last mentioned of these grounds may be disposed of shortly. Ms Thompson became a bankrupt not by virtue of the making of a sequestration order but rather, as mentioned, pursuant to statute upon the acceptance (and related endorsement) of her debtor’s petition. At the time when this occurred, a creditor’s petition presented by the Body Corporate Arila Lodge CTS 14237 (BCAL) was then pending hearing in the then Federal Circuit Court of Australia. Section 153B of the Bankruptcy Act does permit the annulment of a bankruptcy in circumstances where a sequestration order ought not to have been made. However, no such order was made in her case on the creditor’s petition. Rather, what occurred was that, on 2 (not 1) July 2020, the Federal Circuit ordered that BCAL’s petition be dismissed and that its costs of those proceedings (including reserved costs) as agreed or taxed be paid from Ms Thompson’s by then bankrupt estate in accordance with the Bankruptcy Act with the same priority as if a sequestration order had been made pursuant to its petition. The fate of BCAL’s creditor’s petition was dictated by Ms Thompson’s prior presentation and the related acceptance of her debtor’s petition.5.The trustee of Ms Thompson’s bankrupt estate is Mr Morgan Lane of the insolvency firm Worrells. Mr Lane has not opposed the making of an annulment order but rather adopted the stance of abiding such order as the Court may make. He has furnished a report to the Court concerning his administration of Ms Thompson’s estate and expressed an opinion as to her solvency (of which more below). Two creditors, BCAL and Mahoneys, a law firm, have opposed the making of an annulment order. Mahoneys adopted the submissions made on behalf of BCAL.Justice Logan dismissed that application for annulment by Ms Thompson. Ms Thompson appealed Logan J’s decision. The appeal was dismissed by the Full Court on 10 March 2023 in Thompson v Lane (Trustee) [2023] FCAFC 32. Ms Thompson was discharged from bankruptcy on 2 July 2023, pursuant to s 149 of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act). She was informed of this by letter dated 3 July 2023 sent on behalf of the trustee in bankruptcy. Materially, that letter read: …As you are aware you were declared bankrupt on 1 July 2020.A bankrupt is automatically discharged from bankruptcy three years after the filing of their Statement of Affairs with the Australian Financial Security Authority (AFSA). Your three years has now expired and consequently you have been discharged from bankruptcy, with the effective date of discharge being 2 July 2023.It is important to note that whilst you no longer need to refer to yourself as a bankrupt, the administration of your bankrupt estate is ongoing.There are several reasons why the bankrupt estate can continue after discharge, for example:•Where your final income contribution assessment is yet to be made (Schedule A)•Where there are assets to be dealt with by your trustee (Schedule B)•Assets that vested in your trustee in bankruptcy remain vested in your trustee (section 129AA)•Where a request for information is required still to finalise outstanding matters (Schedule C)In those circumstances, whilst you are a discharged bankrupt some residual obligations to assist your trustee still exist. If you need clarity on what you can and can't do, please feel free to contact my office.This letter should be sufficient to evidence that you have been discharged from bankruptcy, but if you would like a certificate of your discharge, please conduct a search of the bankruptcy register at PRESENT PROCEEDINGS

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The present proceedings are not a means through which Ms Thompson can relitigate her loss before Logan J. That judgment was appealed, and upheld by the Full Court. It is not for this Court to entertain an attempt to relitigate, or to order particulars or discovery on issues which have long since been decided by both the Federal Court at first instance and the Full Court on appeal. CONCLUSION I am not satisfied that Ms Thompson is entitled to the interim relief she has sought, in the form of the interim removal of the trustee, the payment by the trustee of the varying sums Ms Thompson has claimed, or the alternative relief sought by Ms Thompson in the submissions filed 6 February 2024. The trustee has sought orders for costs in the following terms: (a)The respondent obtain payment of his costs of an incidental to this application on a solicitor-client basis, out of the bankrupt estate of the applicant; and (b)(If the application is dismissed) The applicant pay the respondents’ costs of and incidental to this application on a party-party basis, to be fixed by a Registrar on a lump-sum basis. (errors in original) Ms Thompson opposes any costs order being made against her. As a general proposition costs follow the event: Oshlack v Richmond River Council [1998] HCA 11; (1997) 152 ALR 83. As the trustee has pointed out, the interim applications concerned the administration of Ms Thompson’s bankrupt estate; the trustee has a right to full indemnity out of the trust estate against all costs, charges and expenses incurred; and Ms Thompson’s bankrupt estate has been put to further expense in responding to the present proceedings. Contrary to submissions of Ms Thompson, there is nothing unethical about costs being claimed against her in these proceedings. I further note that Ms Thompson is no longer a bankrupt. There is no issue in my view in respect of ordering costs against her as appropriate.

Ratio Decidendi

Legal Principle Established

Ms Thompson further referred to sch 2, div 65-25 of the Bankruptcy Act which reads as follows: 65 - 25 Paying money out of administration accountMoney only to be paid out of administration account in accordance with this Act etc.(1)The trustee of a regulated debtor's estate must not pay any money out of the administration account for the estate otherwise than:(a) for purposes related to the administration of the estate; or(b) in accordance with this Act; or(c) in accordance with a direction of the Court.… Ms Thompson also referred in her originating application to “sch 2 div 42-60 of the Bankruptcy Act”. This section does not exist. I accept the submission of the respondent that Ms Thompson intended to refer to s 42-60 of the Insolvency Practice Rules. That section reads as follows: 42-60 Costs incurred to be necessary and reasonableIn conducting an administration, a registered trustee must:(a) incur only those costs that are necessary and reasonable; and(b) before deciding whether it is appropriate to incur a cost, compare the amount of the cost likely to be incurred with the value and complexity of the administration. Ms Thompson further sought in para 2(f) of her further relief that, in the alternative, the trustee provide full and frank details and all documents to evidence that all costs, charges and expenses that the trustee sought to be paid for the administration of the bankrupt estate were necessary, reasonable in amount, and reasonably incurred. Relevantly in his submissions the trustee stated:16.To the extent the applicant purports to seek orders under section 65–25 of Schedule 2 of the Act, the alternative orders sought are not contemplated by that section which is concerned with the payment of money. To the extent the respondent has made payments as part of the administration of the applicant’s bankrupt estate, those payments have been made for purposes related to the administration of the estate and in accordance with the Act.17. To the extent the applicant has referred to section 42–60 of Schedule 2 of the Act, no such section exists. The respondent believes the applicant is intending to refer to section 42–60 of the Insolvency Practice Rules (Bankruptcy) 2016 which relate to a Trustees obligation to incur costs that are necessary and reasonable. This section does not contemplate the granting of the orders sought by the applicant and there is no evidence the respondent has not complied with that section in all respects in any event. Ms Thompson’s complaint relating to “charges by the trustee” against the bankrupt estate for costs is expanded at paras 4(j) and (k) of her Concise Statement filed 5 December 2023:j) acted in breach of s.65-25 of the Bankruptcy Act 1966, including paying $237,103.81 for legal costs from the Applicant’s bankrupt estate, being;$151,821.04 to Shand Taylor Lawyers; noting that the respondent has not responded to the Applicant’s request for identification of what account the amount of $151,821.04 was paid, and the legal basis the $85,282.77 was paid.and$85,282.77 to Arila Lodge CTS 14237; noting that the amount of $85,282.77 does not appear on the Applicant’s Lot 3 Statement dated 18 November 2023, and the respondent has not responded to the Applicant’s request for identification of to whom the $85,282.77 was paid.despite there being no legal basis for such payments, including;i. no exhibited evidence of a valid written Costs Agreement between Morgan Lane and Shand Taylor Lawyers; andii. no valid costs Agreement between Grace Lawyers and “BCAL”; andiii. no exhibited evidence of “BCAL” making any payment for legal costs to Grace Lawyers; andiv. no exhibited evidence of compliance by “BCAL” with the requisite conditions of the Body Corporate and Community Management Act 1997 and Body Corporate and Community Management (Standard Module) Regulations 2008; andv. no exhibited evidence of compliance by Shand Taylor Lawyers or Grace Lawyers with legislation, including Legal Practice Act and Australian Solicitor’s Code; andvi. that in addition to this proceeding, the proceedings QUD286 of 2023, QUD419 of 2023 and QUD420 of 2023 pertaining to legal costs all remain afoot)k) incurred costs, charges and expenses that are not necessary, reasonable in amount, nor reasonably incurred, and are absent valid legal basis (s.42-60 of Schedule 2 of the Bankruptcy Act 1966); and